Outdoor financials: Merrell top earner in Wolverine's first quarter, plus K2, Deckers, Timberland, Columbia, Phoenix

Merrell top earner in Wolverine’s first quarter
With Merrell sales leading the charge (what else is new?), Wolverine World Wide (NYSE: WWW) reported record revenue for the first quarter of 2005 totaling $245.2 million, a 9 percent increase over first quarter 2004 revenue of $224.9 million.

“Merrell, which continued to be our leading sales and profit driver, recorded double-digit revenue and earnings gains with the strongest increases coming from the U.S. business and the success of Merrell Continuum,” Timothy O’Donovan, Wolverine’s president and CEO, said in a statement. “Other areas of achievement included the global Sebago business which posted double-digit revenue and earnings gains.”

Net income increased 35 percent to $16.3 million, or 27 cents per share, from $12.3 million, or 20 cents per share, a year ago. First-quarter earnings were driven by significant gross margin expansion. Gross margin during the first quarter of 2005 grew to a record 39.3 percent, a 130 basis point improvement over first quarter 2004. The company said this improvement resulted primarily from increased sales of higher margin lifestyle products and a positive impact from foreign currency.

Also, Wolverine’s order backlog was up over 11 percent at the close of the first quarter of 2005 compared to the prior year. It is increasing its 2005 estimates and expects revenue to range from $1.045 billion to $1.065 billion, up from our previous estimate of $1.040 to $1.060 billion, and expect earnings per share to range from $1.22 to $1.27, up from our previous estimate of $1.19 to $1.24.

Also, the company’s board of directors unanimously elected O’Donovan to the additional office of chairman of the board, succeeding Geoffrey Bloom. The directors also declared a quarterly cash dividend of $.065 per share of common stock, payable on Aug. 1 to stockholders of record on July 1. The dividend is equal to the last quarterly dividend and represents a $.26 per share annual dividend.

On April 19, Wolverine closed at 19.91, up 16 cents.

K2 reports first-quarter earnings
For the first quarter of 2005, K2 Inc.’s (NYSE: KTO) net sales were $275.2 million, excluding net sales in the aggregate of $45.1 million from the Ex Officio, Marmot, Volkl and Marker businesses acquired by K2 after the 2004 first quarter. K2’s net sales in the first quarter of 2004 were $277.4 million, which reflects a sales decline of 0.8 percent in 2005 excluding the impact of these acquisitions. Excluding the impact of net sales from the acquisitions of Ex Officio, Marmot, Volkl, and Marker, and the previously forecasted sales decline of in-line skates of $8.4 million, K2’s net sales for the 2005 first quarter were $283.6 million, an increase of 2.2 percent.

Richard Heckmann, K2’s chairman and CEO, said that the company’s results in the first quarter of 2005 exceeded its original guidance due to strength in both our Marine and Outdoor and Apparel and Footwear platforms.

Gross profit in the first quarter of 2005 increased to 32.3 percent of net sales, as compared to 31.2 percent in the comparable 2004 period. Gross profit as a percentage of net sales in the 2005 first quarter benefited from higher gross margins in K2’s Apparel and Footwear segment.

Operating income in the first quarter of 2005 was $10.0 million as compared to $19.5 million for the 2004 comparable period, and net income for the 2005 first quarter was $2.3 million, as compared to $10.7 million for the first quarter of 2004. Operating income as a percentage of net sales for the first quarter of 2005 was 3.1 percent compared to 7.0 percent in the comparable 2004 period.

Selling, general and administrative expenses were 29.2 percent of net sales in the first quarter of 2005 as compared to 24.2 percent of net sales in the prior year. K2 said that higher selling, general and administrative expenses in the quarter are principally attributable to the acquisitions of Volkl, Marker and Marmot in 2004, as these product lines have higher levels of fixed expenses compared to K2’s other business lines, and are seasonally slow from a sales standpoint in the first and second quarters.

Ex Officio, Earth Products and Marmot had net sales of $32.9 million in the first quarter of 2005, an increase of 246 percent over the 2004 period. The increase was due to 42 percent growth in technical skate footwear and apparel and the acquisitions of Ex Officio and Marmot in the second and third quarters, respectively, of 2004. Among the noteworthy achievers was Ex Officio’s Buzz-Off apparel brand, which had double-digit sales growth in the quarter.

In a seasonally slow quarter, net sales of skis, snowboards, in-line skates, bikes, snowshoes and paintball products totaled $80.4 million in the first quarter of 2005, an increase of 7 percent over the 2004 first quarter. The increase was due to the acquisitions of Volkl and Marker at the beginning of the 2004 third quarter offset by declines in sales of in-line skates and paintball products.

Deckers’ shares plummet after Q2 forecast
Despite record-breaking financial results for the first quarter of 2005, Deckers Outdoor Corp. (Nasdaq: DECK) was a loser on Nasdaq, falling a reported 25.2 percent in trading on April 21. The drop was a result of Deckers’ second-quarter earnings forecast of 28 to 30 cents per share, well below analysts’ estimates of 43 cents per share. The company cited unseasonable weather and lower expectations from its international business for the weak outlook.

For the first quarter, net sales increased 45.2 percent to $64.3 million versus $44.3 million in the same period last year. Net earnings for the quarter increased 65.1 percent to a record $8.9 million compared to earnings of $5.4 million last year and income per diluted share increased 40.8 percent to $0.69, versus income per diluted share of $0.49 in the first quarter of 2004.

During the first quarter, Deckers’ bad debt expense increased approximately $500,000 versus the same period a year ago, as a result of non-payment by the company’s U.K. distributor for Ugg, which it terminated in March 2005. This unanticipated bad debt expense equated to approximately $0.02 of income per diluted share in the first quarter of fiscal 2005.

Teva net sales for the first quarter increased 5 percent to $39.4 million compared to $37.4 million last year, Ugg net sales for the quarter increased 337 percent to $22.5 million from $5.1 million, and Simple net sales increased 41 percent to $2.4 million for the quarter compared to $1.7 million for the same period last year. Sales for the Internet and catalog retailing business, which are included in the brand sales numbers, aggregated approximately $5.0 million for the first quarter of 2005, up 38 percent from $3.6 million for the first quarter of 2004.

“During the first quarter, Teva achieved its highest quarterly net sales in the company’s history, despite unseasonable weather and lower than anticipated sales overseas,” Chairman Doug Otto said. “Ugg experienced significant growth during the quarter, primarily as a result of carryover shipments of our 2004 fall and holiday product as well as the initial deliveries of our first spring line. For Simple, sales were driven by strength in sneakers, sandals and clogs, as we benefited from expanded distribution and increased shelf space for the brand.”

The gross margin for the quarter was 46.0 percent, compared to 46.1 percent for the first quarter of 2004. Selling, general and administrative expenses were $15.2 million or 23.6 percent of sales for the first quarter of 2005 compared to $10.8 million or 24.3 percent of sales in the first quarter of 2004. This $4.4 million increase resulted primarily from $2.3 million of costs associated with the increased revenue, $0.8 of increased marketing costs, $0.5 million of increased bad debt expenses and $0.4 million related to the initial compliance with Section 404 of the Sarbanes-Oxley Act of 2002. The continued leverage of its selling, general and administrative expenses resulted in a 70 basis point improvement in its operating margin to 22.4 percent of sales for the first quarter of 2005 compared to 21.7 percent for the same period last year.

In order to better meet demand and ensure timely deliveries, Deckers said it is receiving fall and winter Ugg products earlier than it did a year ago. As a result, inventories as of March 31 were up by $27.8 million compared to last year.

Deckers updated its 2005 sales and earnings guidance. For the fiscal year 2005, the company said it remains comfortable with its previously issued guidance of net sales between $250 million and $260 million and income per diluted share between $2.45 and $2.55.

Timberland surpasses analyst outlook for Q1
With strong global footwear sales, Timberland (NYSE: TBL) reported that its first-quarter revenue increased 10.1 percent to $354.2 million from $266 million in 2004, driven by gains in both U.S. and international markets.

The company exceeded analyst expectations and said its quarterly income grew to $42.2 million, or $1.22 per share, from $31.1 million, or 87 cents per share, a year ago. Analysts had estimated earnings per share of 98 cents on revenue of $342.1 million.

U.S. revenues grew 4.0 percent, reflecting solid growth in footwear and apparel — and gains in both wholesale (+4.9 percent) and retail channels (+1.4 percent on a 3.9 percent comparable store sales gain). International results (+15.3 percent or +11.0 percent in constant dollars) were driven by strong constant dollar sales gains in Europe and Asia. Global retail comparable store sales increased 5.4 percent, reflecting gains in both U.S. and international markets. Overall revenue growth benefited from favorable foreign exchange rate changes, which added $7.4 million (or 2.3 percent) to first quarter 2005 revenue.

Global footwear revenues expanded 11.1 percent to $266.0 million, driven by growth in boots, kids’, men’s casual and Timberland PRO series footwear. Global apparel and accessories revenue grew 6.7 percent to $84.6 million, reflecting gains in U.S. and international markets.

Operating profit for the quarter increased 29.7 percent to $61.9 million. Operating margin increased 260 basis points to 17.5 percent. Profit gains reflected strong revenue growth, benefits from favorable foreign exchange hedge rate changes and disciplined cost management. For the quarter, foreign exchange rate changes contributed approximately $5.7 million to operating profit.

Timberland ended the quarter with $203.7 million in cash and no debt outstanding. It said its strong earnings growth and disciplined approach to asset management supported an increase in return on capital from 32.1 percent to 33.2 percent. The company’s inventory at the end of the first quarter was $161.0 million, 12.7 percent higher than 2004, or 4.5 percent on a comparable basis.

Timberland said it continues to anticipate low to mid single-digit revenue growth and double-digit EPS gains for the full year.

Timberland shares rose $5.10, or 7.3 percent, to $75.10 in midday trading on the New York Stock Exchange on April 19.

In separate news, Timberland nominated four new members to the company’s board of directors. Kenneth T. Lombard, Edward W. Moneypenny, Peter R. Moore and Terdema L. Ussery II will stand for election at the company’s annual meeting on May 19. The board has also nominated for re-election seven of the nine directors that are currently serving. Timberland said John E. Beard and John F. Brennan have reached the mandatory retirement age of 72 and will not be sitting for re-election. Lombard is president of Starbucks Entertainment, a division of Starbucks Corp., and Moneypenny is CFO for 7-Eleven Inc. Moore is corporate vice president of the home and entertainment division of Microsoft Corp., and Ussery is president and CEO of the Dallas Mavericks basketball team.

Columbia expands board of directors
Columbia Sportswear (Nasdaq:COLM) has nominated Andy D. Bryant, the executive vice president and chief financial and enterprise services officer of Intel Corp., for election as a director. In connection with the nomination of Bryant, the number of directors to be elected to the board of directors of the company has been increased from eight to nine. Other nominees for director include Gertrude Boyle, Timothy P. Boyle, Sarah A. Bany, Murrey R. Albers, Stephen E. Babson, Edward S. George, Walter T. Klenz and John W. Stanton, each of whom is now a director of the company. Election will take place at the company’s annual meeting on May 24.

Phoenix Footwear buys Chambers Belt Co.
Phoenix Footwear Group (Amex: PXG), parent of Royal Robbins and H.S. Trask, has signed an asset purchase agreement to acquire Chambers Belt Company, a manufacturer of men’s and women’s belts and accessories, for $21.5 million. The purchase will be funded through a combination of cash and Phoenix Footwear common stock. The cash portion of the purchase price will be funded through new debt financing. Phoenix Footwear will also pay $3 million in non-compete payments over a five-year period and earn-out payments to be made in either cash and Phoenix Footwear common stock during the two years after closing, provided that the Chambers Belt business exceeds earnings performance targets during that period. The acquisition is expected to close in the second quarter of 2005.

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